Taste of glory

Author: Reuters

THE BIG ONE: The pinnacle of European club football, the Champions
League trophy, was captured by Inter Milan in May, but the economic
health of its domestic league is the worst among Europe's top five
leagues.

Summer is a difficult time of the year for football fans. Even when there is a major international tournament, as was the case in 2010 with the World Cup in South Africa, it fills only one-third of the three long months during which league football takes a break.

But by early August, when the start of the season in most of Europe's leagues is just around the corner, the optimism fans feel about their team's chances for the coming campaign is likely to far outweigh the weight of any worries. There are always the exceptions, often found in England's Premier League, the richest football division in Europe and, as such, a magnetic draw for businessmen looking for a slice of the big revenue pie.

This summer's ownership change saga is at Liverpool, whose mass marketing appeal and recent financial doldrums – the club is reported to have debts of more than 350 million pounds – makes it an appetising morsel. Its supporters are well justified in viewing any suitors with a critical eye, given that the last ownership change, in 2007, saw the club's debt increase four times and broken promises about the construction of a new stadium.

The fate of Portsmouth, the focus of the 2009 summer saga, is another cautionary tale – after undergoing several ownership changes last season, none of which resulted in new investment, the club was relegated from the Premier League, although it salvaged a modicum of pride by reaching the final of the FA Cup.

If anything, Liverpool supporters will hope that the China Investment Corporation, an investment vehicle of the Chinese government that was reported to be in advanced talks to buy the club, will prove more like the Abu Dhabi United Group of Sheikh Mansour bin Zayed Al Nahyan that bought Manchester City in 2008 and went on to finance a spending spree comparable to that of Roman Abramovich at Chealsea after his acquisition of the club in 2004.

But the list of wealthy billionaires and sovereign wealth funds capable of splurging hundreds of millions on new players is a short one and European clubs could not all expect to find a wealthy benefactor. In fact, despite football's ever-increasing mass appeal, the top five football leagues in Europe were on the verge of bankruptcy, a recent study by consulting firm AT Kearney found.

Even though European clubs employed 547 out of 736 footballers at the World Cup in South Africa, if they were run as normal companies, the top divisions of Spain, England and Italy would be bankrupt within two years, the study said.

"If we were dealing with normal businesses, lenders would call the funds, investors would shorten their positions, hedge funds would bet on the fall. But we are talking about a game, the most popular sport in the world, which benefits from the backing of the largest corporations, the enthusiasm of the entire media industry, and the infallible support of governments. Football is too beautiful, too popular to fail... isn't it?" the study said.

AT Kearney's analysis of the sustainability of Europe's top five leagues – the English Premier League, the Spanish Primera Division, the Italian Serie A, the German Bundesliga and the French Ligue 1 – focused on their sporting, economic, social and environmental performance.

Bundesliga was top because of its exemplary economic and environmental performance. "We shouldn't be surprised at the Bundesliga's performance. The Premier League may be ahead in recent sporting results and revenue generation, but German football is structurally more profitable thanks to a more stable financial setting and larger crowds. German clubs are fully benefiting from the investment made for the 2006 World Cup, particularly the modernised stadia," the report said.

Even though Germany's media market was the most competitive in Europe, Bundesliga's media revenues were underdeveloped, yet the league still posted a 2.1 per cent return-on-assets (RoA) rate, which meant that it had room for further growth.

The top three leagues in Europe, however, did much worse: the Premier league had a RoA rate of -5 per cent, the Primera Division rate was -7 per cent and the Serie A RoA rate was -12 per cent.

"As non-sport companies, England, Spain and Italy are running with an average RoA of four per cent. The profitability gap of the clubs are -9 per cent in England, -11 per cent in Spain and -16 per cent in Italy," AT Kearney said.

Given the large amount of money changing hands between the leagues as player transfers, the failure of one of the leagues, or at least a number of clubs within these leagues, could not be discarded in the medium term, the study said. "This means that even the leagues that have remained virtuous will be impacted. It is also very similar to the recent eurozone experience after the near-default of Greece."

Large spending translated into success on the pitch, but that, in turn, did not translate into economic success. "In today's football industry, virtue is not rewarded. It becomes clear that a structural change to the European football business model would be needed urgently," AT Kearney said.

The solution was to go beyond the financial fairplay rules that Uefa plans to ease in over the coming years, the study said. "The European leagues need to act increasingly as a single entity, rather than individual clubs, leagues or federations. Some ideas can come from US sports leagues like the NHL, NBA or NFL, or from other sports such as rugby or cricket, which have cohesively balanced profitability and sportive attractiveness. Economic co-operation has to be extended drastically, including the implementation of strict financial controls at national and European levels."

Failing to upgrade stadia in Italy and France, as well as academies in England, could be fatal to European football, the study concluded.